S&P drops Eskom to ‘highly speculative’

Johannesburg
– S&P has downgraded Eskom’s credit rating, dropping it from the lowest
level of junk to “highly speculative”, with a negative outlook.

This
rating review follows its Monday’s announcement that it was cutting SA to junk –
the first rating agency to do so.

Moody’s
has placed SA’s sovereign rating – two levels above junk – and Eskom’s rating
on review as well. It may release a decision today. Fitch, the other big three
rating house, yes yet to make a statement about SA, which it has a level above
junk.

Companies
cannot have a rating higher than that of a country.

In a
statement released late on Thursday, S&P cited the deep divisions in
the African National Congress-led government that have led to changes in the
executive leadership of government, which may weaken political and
institutional stability.

“We believe that the downgrade of the sovereign signals a
weakening of the government's ability to provide support to Eskom if needed.”

Just more than a week ago, President Jacob Zuma shuffled
the Cabinet, axing nine ministers including then Minister of Finance Pravin
Gordhan, who was replaced by Malusi Gigaba, from Home Affairs. This led to
S&P’s downgrade.

S&P says its rating on Eskom does reflect its assessment
of an extremely high likelihood of government support, but also factors in the
continuing very substantial gap between Eskom’s stand-alone credit profile and
its global scale rating.

It does not Eskom’s vital role, the fact that if provides
an essential commodity, it is supported by government and has previously
received capital injections.

“Although we still believe that Eskom will benefit from
considerable government support, the predictability of such full and timely
government support in all circumstances is decreasing.”

S&P says Eskom could be moved back to stable if SA’s
rating changes, and if Eskom’s funding situation stabilises

In response, on Friday morning, Eskom CFO Anoj Singh pointed out that 72
percent of the R72 billion in funding required for the current year will be
secured by the end of this month.

Singh
said “We are confident that we will successfully execute Eskom’s funding plan
over the next five years, backed by the availability of the government
guarantees; the only challenge that Eskom will have to contend with will be the
higher cost of debt.”